Which formula should be used (with or without tax effect) – I’ve seen both used throughout different mock exams. 1) Beta (unlevered) = Beta (equity)* (1/(1+(D/E))) 2) Beta (unlevered) = Beta (equity)* (1/(1+(1-t)(D/E)))
At Level II it appears that they use the first; at Level I the second seems to be the way CFA Institute has gone recently.
I agree with S2000, I asked schweser the other day and they gave me the same answer.
Interesting. Level 2 uses the more simple formula without tax effects?
use first one in leval 2.it will be more easy to remember as: Beta (unlevered)*(1+(D/E)) = Beta (equity)
Please don’t ask us why.